Another year has past for renewing solicitors’ professional indemnity insurance and this time around things were much tougher for smaller practices and sole traders.

Research from Marsh showed that some smaller practices and especially those involved with conveyancing, faced premium hikes of up to 100% on last year’s rates. For many it appears this burden was too much to bear, with brokers suggesting a large number of practices were unable to find cover and consequently entered the assigned risk pool. The ARP acts as a stop-gap; a temporary measure where insurers collectively foot the bill for firms in limbo based on their market share. In return they take a substantial percentage of practices’ fees.

So, why the big difference in approach to the larger and smaller legal firms? With the housing market at the centre of the economic downturn, the risk of homeowners defaulting on their mortgage repayments has rocketed in recent months, making solicitors a vulnerable group.

Part of the answer comes down to risk management structures. “Generally larger firms have better risk management structures than smaller firms,” says one broker. He adds that despite smaller firms conducting a lower volume of business, this does not necessarily correlate to a reduction in the number of claims.

“Small firms should have fewer claims than larger firms as they do less work,” he says. “That doesn’t really ring true as the large firms have better risk management structures.”

And the value of claims won’t necessarily vary greatly whether they are made against large or small solicitor firms, therefore for firms bringing in smaller fees, their exposure is greater and their margins squeezed.

RSA opted to introduce discounted premiums to solicitor firms that agree to have a risk management consultant discuss their business practices, underwriting policies on a bespoke basis, taking risk management into account when deciding on price.

But the good times for larger legal firms may not be here forever with Sandra Neilson-Moore, European practice leader for law firms’ professional indemnity at Marsh, claiming next year could be a different story.

“I believe that we have hit the bottom of the market now,” she says. “For firms with higher levels of coverage, where we were completing the placements in the last week, we were already beginning to see insurers taking tougher stances on rates. The early signs are that next year will be more challenging.”